The economy is initially at its long-run equilibrium. A diplomatic dispute with its trading partner countries now leads to a decline in its exports. In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, the output returns to its potential, and real wages decrease. In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, the output returns to its potential, and real wages do not change. In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, the output returns to its potential, and real wages increase. In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, the output returns to its potential, and real wages decrease. In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, the output returns to its potential, and real wages do not change.
Question
The economy is initially at its long-run equilibrium. A diplomatic dispute with its trading partner countries now leads to a decline in its exports.
In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, the output returns to its potential, and real wages decrease.
In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, the output returns to its potential, and real wages do not change.
In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, the output returns to its potential, and real wages increase.
In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, the output returns to its potential, and real wages decrease.
In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, the output returns to its potential, and real wages do not change.
Solution
In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, the output returns to its potential, and real wages do not change.
Here's why:
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A decline in exports means that foreign demand for the country's goods and services decreases. This leads to a decrease in aggregate demand, so the aggregate demand curve shifts to the left in the short run.
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In the long run, the economy adjusts to this decrease in demand. The price level decreases as suppliers reduce prices to clear their inventories. This lower price level stimulates demand, bringing the economy back to its potential output.
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As for real wages, they do not necessarily change in the long run. Real wages are determined by factors such as productivity and labor market conditions, not by changes in aggregate demand. Therefore, the correct answer is: In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, the output returns to its potential, and real wages do not change.
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How do shifts in aggregate demand and aggregate supply affect the economy's output and price level in the short run and the long run?
we distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. in the long runtechnology is fixed but not in the short runthe price level is constant but in the short run it fluctuatesreal gdp equals potential gdpthe aggregate supply curve is horizontal while in the short run it is upward sloping.
48.Keynesian economists believe that in the short run, changes in aggregate demand can lead to fluctuations in: A. Long-run economic growth B. Potential output C. Inflation only D. Unemployment and output levels
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